Socio-economic factors affecting households’ savings rate in South Africa.

Abstract

Abstract High level of savings and investment increase the country’s capital inflow and potential for growth. This makes the country looks attractive to foreign investors, which is great for economic growth. Therefore, the importance of savings as a contribution to a country’s economic growth cannot be over emphasised. Statistically, if the national savings rate falls to a low level, a sustained inflow of capital into the country turns into a net outflow of capital from the country. The growth potential and employment-creating capacity of the economy deteriorates badly. It is therefore not surprising that South African policy-makers and economic analysts have from time to time, expressed increasing concern about the low levels of domestic investment and savings ratios. The aim of this study was therefore to research socio economic factors contributing to the fall of the county’s savings rate and attempt to come up with recommendations on how to mitigate these factors to improve households’ savings level in South Africa. A response rate of 62 respondents (62%) was received from a sample size of 100 was drawn from a population of possible 94 050 targeted Old Mutual Personal Financial Advise clients, narrowed down to only KwaZulu Natal. Quantitative method used for data collection in an online or web based questionnaire. Results from participants revealed that a good percentage of South Africans rather worry about debts than savings. This is due to South Africans being some of the most indebted people in the world. There is just too little at the end of the month to save. Results also revealed that most people in South Africa are not able to save because households have a higher dependency ratio than they should. Most South Africans use their children as substitutes for their retirement policy. This has huge negative implications on future savings by the present youth and end up being an endless cycle of non-saving South Africans. One of the main recommendations was therefore to reform the financial sector, a more stringent process before credit is granted in addition to the national credit act, to ensure appropriate granting and usage of credit. Credit application process should be stringent to ensure that households can reasonably afford the obligation.